- The Washington Times - Monday, December 6, 2004

Richmond consumer electronics retailer Circuit City Stores Inc. yesterday said same-store sales fell 4.3 percent from weak movie sales and a lack of promotional discounts.

International sales helped Circuit City, the nation’s second largest electronics chain, bring total sales for the third quarter that ended Nov. 30 to $2.5 billion, a 3.8 percent increase from last year at $2.41 billion.

But several analysts, along with the company, were disappointed with the quarter, expecting sales to average $2.6 billion, according to a survey by Thompson Financial.

W. Alan McCollough, the company’s chairman, president and chief executive, blamed the lagging sales on slower traffic in the stores, a weaker movie release schedule and the company’s decision to be less promotional in its prices this year.

“Second, business model changes in digital satellite services and wireless phones and related products negatively impacted sales,” he said.

The retailer, which operates 622 superstores and five mall-based stores nationwide, plans to release its profit results for the quarter on Dec. 17.

In reaction to the announcement, Frank Brown, an analyst at SunTrust Robinson Humphrey, downgraded his rating from a “buy” to “neutral” yesterday.

“In our opinion, it will be difficult for investors to take the leap of faith on further profitability improvement at the current stock price level without evidence of same-store sales improvement,” said Mr. Brown, who is with an affiliate of Atlanta-based SunTrust Capital Markets Inc.

He also lowered his earnings estimate for Circuit City’s 2005 fiscal year from 49 cents per share to 40 cents. Mr. Brown does not own any stock in the company, and SunTrust has no banking relationship with the company.

Circuit City stock tumbled 7 percent yesterday on the New York Stock Exchange to $15.13, down $1.08 cents from Friday’s price of $16.21. The stock closed at $16.34 a week ago.

Retail analyst David Campbell Jr. of Thompson & Davis, who expected quarterly sales to be at $2.6 billion, also lowered his earnings forecast for the quarter.

Rather than break even for the quarter, he forecast that Circuit City likely would post a loss, but it would be lower than last year’s third-quarter loss of 14 cents per fully diluted share. Diluted earnings include the value of convertible warrants and stock options.

Circuit City had a third-quarter loss of $28 million (14 cents) in 2003 from $2.41 billion in sales.

“While I changed my earnings guidance, [Circuit City] can still have a good holiday season,” Mr. Campbell said, advising investors to buy.

Mr. Campbell does not own any Circuit City stock, and Thompson & Davis has no business with the retailer.

A better holiday retail season will depend on what the company does for the rest of the month to get patrons into its stores, said William Armstrong, a research vice president at CL King & Associates Inc., a New York brokerage firm.

The results showed “a weakness the company has across the board in terms of customer traffic,” he said.

Mr. Armstrong, who rated the stock as “accumulate” or a weak buy, owns shares of Circuit City, but he would not disclose how many he owns. CL King has no banking relationship with the company.

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